Business In India
India is the world’s 6th largest economy by nominal GDP. According to an IMF report, India ranked 142nd by GDP, on a capita income basis. India long term growth is rapid and fast and every country in the world looking to set up their business in India because of the current size of the Indian market, secondly, it’s 1.5 billion population, and ease of doing business regulation. India is the tenth-largest importer and 19th largest exporter. India government is working on to improve ease of doing business index, currently, India is at 63rd position, as per GCR forum India is at 68th position with 521 million workers, India is the world’s second-largest labour force as of 2019. According to World Bank, If India wants to achieve sustainable economic development, They should focus on public sector reform, agricultural and rural, financial inclusion development and education and public health.
India continuously working on to enhance business and trading agreements with several other nations such as China, USA, UAE, Hong Kong, Saudi Arabia, Germany, Iraq, Singapore, South Korea and Switzerland are the ten largest trading partners in 2019. The foreign direct investment in India was $64.4 billion in 2018-2019 and it is also expected to be increased by 2020, India has a free trade agreement with Japan, South Korea and under negotiation with few other Nations as well.
Types of Business
Private Limited Company
So many start-ups are emerging nowadays in India and growing companies pick this popular business structure because of easily raises funds for business and offer to limit the liabilities of its shareholder and it is better than LLP and General Partnership.
Features of Private Limited Company
- Raising Funding: First, register your company as a private limited company, then you easily can raise a fund with the help of venture capitalistic because the only private limited company can make them shareholders and offer them a seat on the board of directors
- Limited Liability: Business needs a lot of money and funds to start and in the general partnership, all the business partners are equally liable for all the debt raised. If a business-facing any loss and partners not able to repay the taken debts, then they have to sell their personal possessions to do so. But in the private limited company, business owner personal assets are safe.
- Start-up Cost: With the help of ease of doing business in India, anyone can start a business and it’s starting cost would be around 8000 at least, excluding professional fees. In some state, this cost could be higher to begin his own business. The annual compliance cost to start a business could be around 13000
- Requires Greater Compliance: Some basic documentation required and meet the Ministry of Corporate Affairs (MCA) demands. Before starting business manage these demands ranging from annual filing with ROC, annual submission of IT returns, as well as a quarterly board meeting and more. you are supposed to wait before jumping into registering a private limited company.
- Tax Advantages: The private limited company have many tax advantage but it is industry-specific but taxes are to be paid at a flat rate of 30% on profits including DDT ( dividend distribution tax). If you are seeking for the structure with the minimum tax burden, then LLP is the best option that offers some better benefits.
Limited Liability Partnership
LLP relatively cheaper approach as compared to a Private Limited Company to incorporate because it requires lesser compliance. So many improvements have been taken place is that it limits the liabilities of its partners to the business and protect each partner from negligence.
Features of LLP
- Startup cost: There is no additional and hidden cost, it is much cheaper than the private limited company to start. There is no paid capital, no compliance costs, you can start with government fees of Rs 5000.
- Lesser Compliance: Ministry of Corporate Affairs (MCA) provided some concessions to the LLP like audit can be performed only after if your business turnover more than 40 Lakhs or paid-up capital is greater than 25 Lakhs
- Tax Benefits: If your business is making profits and earning more than 1Crore, then LLP offers tax benefits. Tax surcharge does not apply to LLP if the profits greater than 1 crore
- Number of Partners: There is no limit to the number of partners, it depends on you and there is no cap on the number of partners.
General Partnership
A general partnership is a business structure in which two more partners manage and operates a business as per their terms and objectives set out in the business deed. Since the introduction of the LLC business structure, this structure has lost its relevance because it offers unlimited liability means partners are personally liable for the debts and low set-up cost, lesser compliance requirement make this structure most viable option.
Features of General Partnership
- unlimited liability
- easy to start
- Not expensive
Sole Proprietorship
This type of business structure is managed and owned by a single person. It is a viable option for small traders and merchants. It is particularly popular among the unorganized sector because there is no registration
Features of Sole Proprietorship
- easy to start
- offer unlimited liability
One Person Company
Such type of business structure managed by a single person, OPC was recently introduced with some improvement and accepted by the owner over the sole proprietorship. In this type of business structure, there is no scope of raising funding.
Features of One Person Company
Startup costs: There is only government fees included that is nearly less than Rs 7000 and this cost is variable and changing state to state.
Tax Advantage: Taxes are to be paid at a flat rate of 30% only on profits, DDT applies. If you are looking for a tax structure with the minimum tax burden, the LLP offers some better benefits option.
Compliance Requirements are High: You will be required to conduct annual statutory audits, internal audits, submit IT returns, annual reports and also need to fulfil the MCA requirement as well.
Types of Companies
Basically, there are three types of the company such as a statutory company that is limited by shares, Registered company that is limited by guarantee and other is Unregistered company.
Statutory company:
Such type of companies may be incorporated by means of a special act of the parliament or any state legislature. Such companies are generally established to carry out some special public undertaking such as railways, electric generation and so on.
Registered Company:
Such companies come into existence when they are registered under the companies act 1956 and certificate of incorporation are provided to them by the registrar. And these types of companies are limited by guarantee. The registered company are further divided into three parts
1.Company Limited by Shares
2.Company Limited by Guarantee
And it is further classified into as follows:
- private company
- public company
- foreign company
- government company
3.unlimited company
Unregistered Company:
These types of companies are not covered under the provisions of the Companies Act, 2013, Section 375.
Comparative Analysis of Different Business Establishments
| Particulars | Private | Public | OPC | LLP |
|---|---|---|---|---|
| Minimum Members | 2 | 7 | 1 | 2 Partners |
| Maximum Members | 200 | unlimited | 1 | No Limit |
| Minimum Directors | 2 | 3 | 1 | 2- Designated Partners |
| Maximum Directors | 15 | 15 | 15 | No Limit |
| Transfer of ownership | Ownership can be transferred through share | Ownership can be transferred | Ownership can be transferred to nominee in the event of owner death | Ownership can be transferred |
| Subscription of Shares | Public subscription not allowed | Public subscription not allowed | Public subscription not allowed | Public subscription not allowed |
| Issue of Prospectus | Not Mandatory | Mandatory | Not Mandatory | Not Mandatory |
| Managerial Remuneration | No Limit for Managerial Personnel | Govt Approval, if remuneration payable is above limits | NA | Remuneration is based on LLP agreement |
| Commencement of Business | Immediately after obtaining certification of incorporation | Immediately after obtaining certification of incorporation | Immediately after obtaining certification of incorporation | Immediately after obtaining certification of incorporation |
| Legal Status | Pvt Co is a separate legal registered under a company act 2013. The directors are liable for defaults made under the act | Public Co is a separate legal registered under a company act 2013. The directors are liable for defaults made under the act | OPC is a separate legal registered under a company act 2013. The directors are liable for defaults made under the act | LLP is a separate legal registered under a company act 2008. The directors are liable for defaults made under the act |
| Governing Act | Company act , 2013 | Company act , 2013 | Company act , 2013 | LLP act, 2008 |
| Foreign Ownership | Investment allowed under automatic approval route in most sector | FDI is allowed under automatic route in the government allowed sector | The director and nominee director cannot be foreigners | Allowed with prior approval of RBI and FIPB |
| Annual Statutory Filings | Annual statement of account and annual return with ROC | Annual statement of account and annual return with ROC | Annual statement of account and annual return with ROC | Annual statement of solvency and annual return with ROC |
| Annual Filings | IT returned to be filled | IT returned to be filled | IT returned to be filled | IT returned to be filled and audit mandatory in case turnover exceeds INR 40 Lakhs |
Ease of Doing Business Ranking of States of India
Ease of doing business index of states and UT of India under the Make in India initiative by BRAP (Business Reforms Action Plan). Since 2015, the ranking of states has been managed by the world bank and facilitated by DPIIT( Department for Promotion of Industry and Internal Trade).
In 2016, India was at 130th position out of 190 countries, now at 100th position globally. The government-appointed the UNDP( United Nations Development Programme) and NPC ( National Productivity Council ) to find actual users and get their feedback on various reform measures. Every Indian state executing ad working on various business reform to attract more business opportunities in their state. On the basis of the parameter, every state submitted their report and that being verified based on the supporting documentary evidence. Various states are executing their respective Business Reforms Action Plan to improve their state ranking. As of now, 18 states claimed a 100% completion score.
| State | Ranking | State | Ranking |
|---|---|---|---|
| Andhra Pradesh | 1 | Punjab | 19 |
| Uttar Pradesh | 2 | Assam | 20 |
| Telangana | 3 | Jammu and Kashmir | 21 |
| Madhya Pradesh | 4 | Andaman and Nicobar | 22 |
| Jharkhand | 5 | Dadra and Nagar Haveli | 23 |
| Chhattisgarh | 6 | Goa | 24 |
| Himachal Pradesh | 7 | Mizoram | 25 |
| Rajasthan | 8 | Bihar | 26 |
| West Bengal | 9 | Puducherry | 27 |
| Gujarat | 10 | Kerala | 28 |
| Uttarakhand | 11 | Arunachal Pradesh | 29 |
| Delhi | 12 | Chandigarh | 29 |
| Maharashtra | 13 | Manipur | 29 |
| Tamil Nadu | 14 | Meghalaya | 29 |
| Lakshadweep | 15 | Nagaland | 29 |
| Haryana | 16 | Odisha | 29 |
| Karnataka | 17 | Sikkim | 29 |
| Daman and Diu | 18 | Tripura | 29 |
source: (startupindia.gov.in)